Investment Associated with the Canterbury Rebuild
Estimating the level of investment activity associated with the Canterbury rebuild is inherently difficult and subject to much uncertainty. To reflect this uncertainty, the Treasury estimates are rounded to the nearest $5 billion. In this box the term investment relates to the gross fixed capital formation concept used in the compilation of GDP.
Estimates revised higher...
New information compiled by the Canterbury Earthquake Recovery Authority (CERA) has led the Treasury to revise its estimate of the total level of investment that relates to the Canterbury rebuild to $40 billion from $30 billion in the Half Year Update (Table 1.3). This investment will be spread across a number of years, including beyond 2017 and reflects both private sector and government spending.
| Residential |
Commercial and social |
Infrastructure | Total | |
|---|---|---|---|---|
| Half Year Update | 14 | 13 | 3 | 30 |
| Budget Update | 18 | 15 | 5 | 40 |
Sources: CERA, the Treasury
...but resource constraints mean the rebuild will extend beyond the forecast period
Resource constraints in the local and national economy mean that the amount of rebuild activity forecast to occur in the period to June 2017 is similar to the Half Year Update; a little under half of the recovery-related investment is forecast to occur during this period. The key implication of the revised estimate is either to extend the duration of the rebuild or increase the intensity of activity beyond 2017.
In addition to uncertainty around the amount of recovery-related investment that will occur, there is uncertainty over the timing and intensity of the rebuild. Key determinants of the rate of progress and the eventual peak of the rebuild include insurance settlements as well as the capacity and capability of the construction sector. These factors provide both upside and downside risks to our $40 billion rebuild assumption, as well as the proportion of this that occurs by June 2017. Another risk to the forecasts is how much the Canterbury rebuild crowds out activity in other parts of the economy (for further discussion see the Risks and Scenarios chapter).
The Treasury's estimate of the level of investment required to repair or replace capital assets that were damaged or destroyed in the earthquakes is a major subset of total earthquake-related transactions. It captures the vast majority of the additional expenditure expected to be captured in the national accounts (GDP). Total transactions would include non-capital items (such as business interruption insurance), non-construction costs (such as residential red zone property purchases) and central government operating expenses resulting from the earthquakes. Factoring in these elements would lead to estimates higher than $40 billion.
A discussion about the earthquake-related expenses incurred by the Government can be found in the Fiscal Outlook Chapter on page 33.
